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AstraZeneca's first quarter revenue increased 17% at constant currency to $6.4bn, driven by a rise in product sales. Operating profit rose 16% to $1.2bn, also at constant currency. Core earnings per share rose 21% to $1.05 on the same basis

Our View

AstraZeneca has turned a corner. The long awaited new drugs are out of the labs and into the hands of sales reps - who seem to be doing a sterling job. Demand for medication doesn't flag in the face of recessions or pandemics, which could make pharmaceutical makers a good diversifier in a cyclically-focused portfolio. This has meant the shares are actually up this year, compared with heavy losses for the broader index.

The group's portfolio of new Oncology drugs has been a particular success story, and it's a trend that looks set to continue with a raft of new cancer treatments scheduled for trial results or regulatory opinions over the coming year.

The decision to expand the geographic footprint is bearing fruit too. An increased presence in Emerging Markets and Japan means Astra's been able to make the most of new drugs as and when they arrive, while boosting sales of more mature treatments. We've been particularly impressed with relatively mature asthma treatment Pulmicort's growth in Emerging Markets.

Astra's other strategic bet, a collaboration with oncology specialist Daiichi Sankyo, also seems to be paying off. The high risk deal was pricey and focused on a drug, Enhertu, which hadn't been approved in any markets. Since the deal was signed we've seen positive trial results and the drugs been approved for certain breast cancers in the US. A great result from a drug which could easily have fallen at the final hurdle, but then that's an occupational hazard in the pharmaceutical industry.

Despite the green shoots, organic free cash flow hasn't been strong enough to support the dividend. That means Astra will be relying on debt to fund the dividend for a little bit longer at least. While that's clearly unsustainable in the long run, if all goes to plan shareholders will applaud the decision to hold the dividend steady during the lean times.

It's worth bearing in mind though that the need to deal with the sizeable debt pile means significant dividend growth could be some years away. With a current yield of 2.7% that might be a bit of a disappointment.

First Quarter Results (at constant currency)

Astra thinks revenue growth benefited from a low-to-mid single-digit perecentage increase thanks to stockpiling, longer presecrpitions and patients being more vigilant about completing courses. However, the group thinks this effect will unwind as the year progresses.

Product sales revenue grew 17%, largely on the back of new medicines where sales grew 49% to $3.0bn and now make up 47% of product sales, up from 37% last year. Revenue grew in every therepy area. Oncology sales were up 34% to $2.5bn, New Cardiovascular (CV), Renal & Metabolism grew 8% to $1.1bn and Respiratory & Immunology grew 22% to $1.5bn. Collaberation revenue rose 70% to $43m.

Revenue also grew in every geographic region. Emerging market sales grew by 16% to $2.3bn, China by 17% to $1.4bn, the US by 16% to $2.1bn, Europe by 25% to $1.2bn and Japan by 8% to $553m.

Operating expenses grew 10% and are now equivalent to 66% of revenues (Q1 2019: 70%). Net debt increased from $11.9bn at the end of 2019 to $14.4bn on 31 March, mainly reflecting the dividend payment and low cash inflow from operations after taxes and interest payments.

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